Skip to Main Content

What is a jumbo loan and when do you need one?

A pricier home
karamysh/Shutterstock.com
A pricier home
karamysh/Shutterstock.com
Bankrate Logo

Why you can trust Bankrate

While we adhere to strict , this post may contain references to products from our partners. Here's an explanation for .

ON THIS PAGE Jump to Open page navigation

A jumbo loan is a mortgage for an amount that exceeds the limits set by Fannie Mae and Freddie Mac, the government-sponsored agencies that buy most U.S. home loans and package them for investors. If you’re buying a mansion — or just a regular home in a high-priced area like Silicon Valley — you might need a jumbo loan.

Lightbulb
Key takeaways
  • Jumbo loans are used to cover larger-than-normal mortgage amounts
  • Jumbo loan limits vary by lender and geographic location
  • Interest rates on jumbo loans also different from traditional mortgages
  • There are stricter underwriting guidelines for jumbo loans
  • Payment schedules and other details are the same as traditional mortgages

What is a jumbo loan?

As the name implies, a jumbo loan covers a larger-than-normal loan amount. Jumbo loans can be used for primary homes, investment properties and vacation homes.

The maximum size of a jumbo loan varies by mortgage lender and location. Qualifying guidelines can vary, too. Because the market for jumbo loans is smaller than the market for conforming loans, you might need to shop around a bit more to find a mortgage. The rates on jumbo loans often differ from conforming loan rates, too.

Aside from those distinctions, jumbo loans aren’t much different from traditional mortgages. Payment schedules and other details are generally the same. Borrowers can get fixed- or adjustable-rate jumbo mortgages with various term options.

While there were reports of lenders pulling back from jumbo mortgages early in the pandemic, the market for jumbo loans is mostly back to normal — and as of January 2022, rates on these types of loans are becoming even more favorable.

Jumbo loans vs. conforming loans

You’ll have more buying power with a jumbo loan compared to a conforming loan, but you’ll pay more in interest since your balance is higher.

Jumbo loan limits

If you want to borrow more than the loan limit for your area, you’ll need a jumbo loan. For 2022, the limit for conforming loans in much of the country is $647,200. However, the loan limits are higher in expensive areas. For much of California and for the New York and Washington, D.C., metro areas, for example, the 2022 loan limit is $970,800. Alaska and Hawaii also have that higher loan limit this year. The limits for jumbo loans vary by geographic region.

Jumbo loan rates

The rates on jumbo mortgages fluctuate and can be higher or lower than the conforming mortgage rate. Currently, the average 30-year jumbo APR for a home purchase is 5.610%, while the average 30-year conforming loan APR for a purchase is 5.610%, according to Bankrate’s survey of mortgage lenders.

Pros and cons of a jumbo loan

The main benefit for borrowers is that a jumbo mortgage allows you to borrow more than the limits imposed by Fannie and Freddie. For instance, if you’d like to borrow $1 million against a $1.5 million home, a jumbo loan makes it possible.

Some borrowers prefer to finance more of the home’s cost rather than tying up cash, making the jumbo mortgage a helpful financial tool and part of an overall investment strategy. You can still get a competitive interest rate and finance the home of your choice without being restricted by the dollar limit on conforming mortgages.

Pros

  • Allows you to borrow more than a traditional mortgage loan
  • Competitive interest rates
  • Opportunity to buy a larger home

Cons

  • Higher credit score required to qualify
  • Larger annual income needed
  • Must have cash reserves to cover 6 to 12 months of payments

How to qualify for a jumbo loan

Jumbo lenders typically impose stricter underwriting guidelines than those extending traditional mortgages. Because the loans aren’t backed by Fannie or Freddie, jumbo mortgages pose more risk to the lender. On the flip side, lenders have more to gain — the dollar value of the loan is higher, and the lender gains an opportunity to sell additional services to these more affluent borrowers.

Jumbo loan requirements

There are three common hurdles borrowers must clear to get approved for a jumbo loan:

  • Larger income requirements – You’ll typically need a low-debt-to-income (DTI) ratio, which is the percentage of your monthly income that goes to debt payments. If your income is on the lower end and you have a hefty sum of outstanding debts, you might not qualify for a jumbo loan unless your credit score is excellent or you have a sizable amount of reserves.
  • Higher credit score – The jumbo loan credit score requirement is usually higher than what you’ll find with a conforming loan. “The average is around 740, although I have seen some as low as 660,” says Robert Cohan, president of Carlyle Financial based in San Francisco. “[But] if you’re high-leveraged and you have a low credit score, it’s going to be hard to get a jumbo loan.”
  • Heftier reserves – The down payment on a jumbo loan is typically 10 percent to 20 percent (and sometimes more). “Anything lower than a 10 percent down payment and you’re probably going to pay for it in higher rates,” Cohan says. Be prepared to also show enough reserves, or liquid assets, to cover between six and 12 months’ worth of mortgage payments.

Is a jumbo loan right for me?

Deciding whether a jumbo loan is right for you depends on a variety of factors. These types of loans expand home ownership options, making them particularly beneficial in parts of the country where housing is especially expensive. One of the first steps to determine whether a jumbo loan makes sense is researching the conforming loan limits in your region. If the homes you are interested in buying do not fall within conforming loan guidelines, a jumbo loan may be appropriate.

However, a jumbo loan is not designed to allow buyers to stretch their financial limits to the brink. They are meant for buyers with a substantial stable income and ample resources.

Jumbo loan limits by state

The table below provides state-by-state jumbo loan limits for 2022. In many states, the limits vary by region within each state.

2022 Alabama loan limits by county 2022 Montana loan limits by county
2022 Alaska loan limits by county 2022 Nebraska loan limits by county
2022 Arizona loan limits by county 2022 Nevada loan limits by county
2022 Arkansas loan limits by county 2022 New Hampshire loan limits by county
2022 California loan limits by county 2022 New Jersey loan limits by county
2022 Colorado loan limits by county N2022 ew Mexico loan limits by county
2022 Connecticut loan limits by county 2022 New York loan limits by county
2022 Delaware loan limits by county 2022 North Carolina loan limits by county
2022 District of Columbia loan limits 2022 North Dakota loan limits by county
2022 Florida loan limits by county 2022 Ohio loan limits by county
2022 Georgia loan limits by county 2022 Oklahoma loan limits by county
2022 Hawaii loan limits by island 2022 Oregon loan limits by county
2022 Idaho loan limits by county 2022 Pennsylvania loan limits by county
2022 Illinois loan limits by county 2022 Rhode Island loan limits by county
2022 Indiana loan limits by county 2022 South Carolina loan limits by county
2022 Iowa loan limits by county 2022 South Dakota loan limits by county
2022 Kansas loan limits by county 2022 Tennessee loan limits by county
2022 Kentucky loan limits by county 2022 Texas loan limits by county
2022 Louisiana loan limits by county 2022 Utah loan limits by county
2022 Maine loan limits by county 2022 Vermont loan limits by county
2022 Maryland loan limits by county 2022 Virginia loan limits by county
2022 Massachusetts loan limits by county 2022 Washington loan limits by county
2022 Michigan loan limits by county 2022 West Virginia loan limits by county
2022 Minnesota loan limits by county 2022 Wisconsin loan limits by county
2022 Mississippi loan limits by county 2022 Wyoming loan limits by county
2022 Missouri loan limits by county
Written by
Jeff Ostrowski
Senior mortgage reporter
Jeff Ostrowski covers mortgages and the housing market. Before joining Bankrate in 2020, he wrote about real estate and the economy for the Palm Beach Post and the South Florida Business Journal.
Edited by
Reviewed by
Senior mortgage loan originator, American Fidelity Mortgage